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HP in Talks to Sell Stake in H3C to Chinese Chip Vendor

According to a report, HP is negotiating with China's largest chip maker, Tsinghua Unigroup, to sell a controlling stake in its networking subsidiary.

Hewlett-Packard reportedly is in discussions to sell a majority stake in its H3C Technologies networking subsidiary to Chinese chip maker Tsinghua Unigroup.

According to a report in the Wall Street Journal, Tsinghua—a venture in China that runs Chinese chip designers RDA Microelectronics and Spreadtrum Communications—could pay HP as much as $5 billion for a 51 percent stake in H3C, which the tech giant inherited more than five years ago when it bought networking vendor 3Com for $2.7 billion.

The 3Com deal enabled HP to significantly bolster its networking capabilities to compete against the likes of Cisco Systems and Juniper Networks, and at the time of the deal officials saw the H3C business as a way to expand HP's presence in the important Chinese market. H3C has about 4,800 employees. Reports of HP's interest in selling a majority stake in H3C began circulating in October 2014, weeks after HP CEO Meg Whitman announced that the company would split in two later this year.

One company, Hewlett-Packard Enterprise, will focus on business IT products and services, while HP Inc. will sell PCs and printers.

U.S. tech vendors continue to invest in and partner with Chinese companies to help gain greater traction in the Chinese market. For example, Intel last year invested $1.5 billion for a 20 percent stake in Tsinghua, one of several moves the giant chip maker has made in the country. At the Intel Developer Forum China earlier this month, CEO Brian Krzanich said that over the past 30 years, Intel has invested more than $7.7 billion to fuel its efforts in China and currently has 7,500 employees spread out around 27 sites in the country. In addition, the chip maker generates $10 billion a year from its China operations.

Other vendors, such as IBM, also have struck deals in the country. Such moves come amid growing suspicions between the United States and China over security, with both countries questioning whether the other is using products developed by companies for cyber-espionage or other reasons that go against their national interest. Most recently, the U.S. government barred Intel from selling Xeon processors to Chinese supercomputer centers for fear that two supercomputers—Tianhe-2 and Tianhe-1A—are being used in nuclear tests.

Chinese government officials also are pushing businesses in that country to use homegrown products to reduce their reliance on foreign technologies.